Firing line  

‘Ensuring we have managers changing the stocks is key’

‘Ensuring we have managers changing the stocks is key’

The head of the Alliance Trust Investment Committee says it is difficult to convince multi-managers to run as little as 20 stocks in their portfolio.

Craig Baker, who is global chief investment officer at Willis Tower Watson, says this is because mainstream products run by managers tend to have at least 50 stocks in their portfolio to ensure it remains diversified. 

Alliance Trust’s capital is divided among nine managers who run their portion of the fund according to their style. 

Mr Baker says each manager is given the opportunity to run a global equity mandate.

He says: “There is a maximum of 20 stocks that they can own, which is quite unusual in the multi-manager space.”

Mr Baker highlights that conventional multi-manager strategies usually consist of a lot of stocks. 

“You end up with an enormous amount of stocks. You end up looking very much like the index, and it is very difficult to outperform and it is pretty expensive.”

He adds: “This approach [at Alliance Trust] is different. Each of them run maximum 20 stocks, so you end up with a portfolio that is not overly diversified.”

Alliance Trust Investments was sold to Liontrust who bought the team that ran the trust’s equity portfolio. 

The trust’s new board decided to pursue a multi-manager approach and that is where WTW came in. 

Equity challenges

Mr Baker says the main challenge around running equity investment trusts is to ensure the portfolio can do very well in different types of environments. 

“We have some managers who are much more deep-value oriented and we have got some who are much more growth-oriented. But ensuring that we have the balance right and managers are changing the stocks in the portfolio [is key],” he says.  

“We are having to constantly look at how that balance is evolving,” he adds. 

Mr Baker does not dismiss the fact that equity investment trusts can be very volatile due to their vulnerability to geopolitical events. 

He says: “Something like Brexit is unlikely to have impact on global equities investment trusts, but can have a significant impact on the ones that are biased to UK equities.”

Closed v open-ended funds

While most platforms do provide investment trusts, he highlights how Cofunds, the largest in the UK, does not. 

“An investment group we are working with are moving away from Cofunds because they cannot distribute trusts,” he says. 

Mr Baker adds: “Through their current [platform] they cannot market investment trusts because of the Cofunds platform.” 

Even though investment trusts have outperformed open-ended funds in recent times, according to the Association of Investment Companies, Mr Baker questions how actively financial advisers are recommending them. 

AIC data indicates the average investment trust returned 1.3 per cent in the year between January and November 2018, outperforming losses of 2.6 per cent for the average open-ended fund and 6 per cent for the FTSE All Share.